7 September 2022ArticleAnalysis

Barbados’ captives market: a global leader

There are many reasons for the island nation of Barbados to be talked about on a range of trending topics, from sustainable development to climate leadership, and fair trade.The country’s leader, Prime Minister Mia Amor Mottley, has been drawing global attention to the economic, social and development challenges of small states. She has become a thought leader who people are watching.Barbados is a leader in the captive insurance management services arena. It has strategically leveraged its world-class physical and telecommunications infrastructure, top rated educational system and expansive treaty network, to establish one of the globe’s foremost captive insurance domiciles.The fact that this eastern Caribbean island is also a popular tourism destination for North Americans and Europeans offers added value for the jurisdiction, ranked as the seventh largest captives market in the world.As the utility of captives garners greater support, there has been exponential growth in licensing of this segment of the insurance market.The circumstances that pushed more corporate entities and non-profits to establish captives for their specific industry or sectoral needs still exist, and jurisdictions such as Barbados have developed as reliable, highly competitive options.The challenges thrown up by the COVID-19 pandemic have subsided. However, other equally unsettling risks such as supply chain disruptions which impact production output are now converging with rising oil prices and pervasive inflation to create a difficult environment for many enterprises.

An ideal choice

There has been no ease in the hardening of the commercial insurance market, and coverage for unique risks such as cyber, environmental, directors and officers, terrorism, and pandemic are but a few for which Barbados-registered captives are an ideal choice.The country’s captive insurance market does not seek to offer an easy answer to its prospective captive registrants. However, its suite of offerings is being leveraged by local professionals to arrange tailored self-coverage and risk management.The “

2021 Captive Landscape Report

” compiled by global consulting firm Marsh, which has offices in Barbados, stated: “Captives have exploded in popularity, accounting for $60 billion in gross premiums, an increase of more than $6 billion.”Wayne Fields, a former managing partner with PwC, is the president of DGM Financial Group, a leading captive management services company on the island.Fields outlines some of Barbados’ competitive advantages in the provision of management services for captives. Foremost is the cost factor which, he highlights, is mitigated significantly because of Barbados’ rich resource of highly-trained local professionals in fields such as law, accounting, insurance, management and to some extent, actuarial science.While competitors in similar jurisdictions require the significant incorporation of expatriate professionals, resulting in much higher costs to build out their human resources base, Fields notes Barbados’ large complement of experienced, as well as young, highly trained professionals.

“The cost of doing business in Barbados remains favourable relative to our competitors which have much stronger currencies and must pay foreign workers high salaries to encourage them to relocate. Furthermore, engaging Barbados’ local workforce ensures that long-term relationships can be built with clients, avoiding the constant churn that results from a transient workforce,” Fields notes.Furthermore, establishing a captive is relatively cost-effective, with an annual registration fee of $25, 000 for core companies. The minimum capital requirement for an insurance company writing all its risk outside Barbados is $125, 000.Steve Clarke, audit and assurance lead partner with Deloitte Barbados, another experienced Barbadian professional who has served in the Bermuda, New York, and UK offices of the international audit firm, described the Barbados registration and compliance processes for captives as “relatively simplified”.Speaking at a captives conference earlier this year, he too highlighted the island’s rich human resource capacity.There are many professionals to service the needs of the captive insurance sector, he asserted, adding: “There are very few cases in which professional service providers need to be imported.”In a global environment in which regulatory and compliance requirements are taking centre-stage, Barbados has maintained a robust yet pragmatic approach.

The role of fintech

As an international financial centre, Barbados is already anticipating the impact of fintech driving innovation in global financial services.Oliver Jordan, chair of Barbados’ regulator, the Financial Services Commission (FSC), addressed the topic at the 2022 Barbados Risk and Insurance Management Conference.Jordan asserted that the new “anticipatory regulation” approach is emerging as the tool to use in response to the new technology.Outlining what he saw as relevant in the Barbados context he said that “regulators should adopt a more inclusive and collaborative approach”.“This means more explicit and open dialogue with innovators and entrepreneurs to ensure that regulators are not blocking them in ways that offer little public benefit,” he said.Barbados has other significant “pull” factors encouraging multinationals to establish captives on the island. Apart from the regulatory framework, tax structure and a vibrant insurance community of Barbados-registered global captives, companies are drawn to the added value of the island’s extensive network of double taxation agreements (DTAs) and bilateral investment treaties.Not every company will require the use of DTAs but those that do reap the benefits of such long-standing sovereign arrangements.

“FCP holders are exempt from payment of stamp duty and property transfer tax.”

Canadian companies, for example, have invested more than Can$45 billion in Barbados and use DTAs as a central component of their investment strategy.The agreements with more than 40 jurisdictions establish Barbados’ treaty network as being among the world’s most extensive. The number, quality and longevity of these arrangements provide Barbados with another significant edge on its competitors.Barbados’ DTA with the UK was established 52 years ago, while the Switzerland DTA has been in place for 49 years, and the Canadian agreement was inked some 42 years ago.Invest Barbados, the national economic development and promotion agency tasked with attracting, winning, and retaining international investment for the island, is headed by chief executive officer Kaye-Anne Brathwaite.She touts Barbados’ high ranking on the Global Financial Centres Index where it was rated among the highest in the region last year, offering a “competitive, stable and transparent market”.The country also ranked second for competitiveness among Latin America and the Caribbean. Brathwaite notes: “Barbados remains a resilient global finance centre, built on a stable environment underpinned by transparency and compliance.”

Why Barbados?

Here are some other reasons for choosing Barbados as the domicile of choice for captive insurance operations.

  • For US captives, under the Barbados/US tax treaty, a company controlled by US investors may be able to carry out prescribed activities in the US without being deemed to have a taxable presence there.
  • For Canadian captives, dividends paid to a Canadian company out of income earned from an active insurance business in Barbados may be considered as exempt surplus for Canadian tax purposes and are therefore not subject to tax in Canada, when repatriated.
  • Captives have the flexibility to establish segregated cells and separate accounts.
  • There are low capital and flexible solvency requirements.
  • International insurance companies can expect quality infrastructure including experienced minds and management on the ground, ranging from management companies, international banks, investment companies, lawyers, auditors, risk managers and accountants.
  • Political, social and economic stability. Established in 1639, the Parliament of Barbados is the third oldest in the Americas.
  • All entities that earn 100 percent of their income from foreign currency can have a foreign currency permit (FCP) allowing the holder exemption from exchange controls and withholding tax on all payments including dividends to non-residents. FCP holders are exempt from payment of stamp duty and property transfer tax.
  • The island’s information and communications technology framework comprises a reliable island-wide fibre-optic network, wifi and high-speed 4G data services. The country is a major gateway with direct daily flights to major cities and has a modern seaport.
  • In Barbados there are no restrictions on property ownership, while the processes for establishing a business are straightforward.
  • Barbados ranks eighth in the Americas on the UN Human Development Index for its high standard of living.

On the tax side, insurance companies registered in Barbados are licensed under the Insurance Act and fall into one of three different classes.Class I licensees that underwrite related party business pay zero tax; class II licensees that underwrite risks of third parties pay 2 percent; and class III licensees, which include insurance intermediaries, management and holding companies, pay 2 percent.Decisions on which class a licensee falls into are determined by the FSC.Annual filing requirements include licence fees, audited financial statements within six months of the end of the financial year, and corporation tax returns to be filed by March 15 or June 15, based on the company’s financial year.